Many IT managers approach the budgeting process with the enthusiasm of a person facing root-canal surgery. Budgeting is hard work, it’s time consuming, and it calls for the ability to see into the future. But with the right tools, the budgeting process can be a lot less intimidating. I’ve developed a budgeting tool that can help ease your burden during budget preparation time. Click here to download it.
I pride myself in never having missed an operating budget out of the fifty or so I’ve developed. The trick is to understand your current spending trends, develop a thorough picture of your staffing needs for the next year, and be conservative in just the right places. You must spend some time to understand the financial aspects of your IT operation if you’re to develop an achievable plan. If you don’t, you can’t manage your business.
The bottom line is that you simply cannot predict everything that will affect the financial aspect of next year’s operation. To achieve your goals, you have to build some conservatism into the plan or be very lucky. My experience has taught me that surprises that come up in the course of a year almost always have negative financial impacts. Anticipate this, and build in expense buffer to handle it when it happens.
My budgeting tool has four components:
- Budget assumptions (Assumptions tab)
- Staffing spreadsheet (Salary tab)
- Other expense and revenue spreadsheets (Consulting Fees tab)
- Operating budget spreadsheet (Operating Budget tab)
A few quick tips to get you started
Spend most of your time getting your large-expense items budgeted properly. Expenses in areas such as salary, rent, telecommunications, hardware and software maintenance, travel, and outside consulting are normally your big-ticket items. Achieve your plan in these areas, and you will generally achieve your entire department’s plan, so spend the time to develop a thorough understanding of the dynamics in each of your large-expense categories.
Use past-year trends to validate and help you gauge spending in a new year. For most small-expense categories, past-year trends are enough to help you determine what to budget for the next year. Don’t waste a lot of time trying to determine exact dollars for things like postage unless it’s a large component of your IT budget.
Create assumptions, and write them down for all revenue and expense line items. You will find it helpful to review later what your thoughts were when you created the plan. These assumptions will also help considerably when you get ready to budget the next year.
The first tab in the tool includes a set of instructions to help you. Start there, then review the Assumptions tab before actually adding any numbers to any of the spreadsheets. The Instructions tab also includes pointers on how to approach certain budget issues, including where to use conservatism.
A spreadsheet is set up for Consulting Fees. Use this spreadsheet for these fees, or copy the spreadsheet and make a blank template for any other expense or revenue line item. For example, your IT organization may have twelve or more locations where you pay rent to house IT employees. If so, you should create an individual spreadsheet listing the office rents for the year. When completed, refer to the operating budget spreadsheet and use the Consulting Fees tab as an example of how to pull in the total rent expense from your new “office rent” spreadsheet.
Spend the most time on your staffing planning for the New Year. This one category is the most important. It is normally your largest expense item, and can make or break your plan. The Instructions provides tips to help you build in conservatism so that you achieve your plan.
Budgeting doesn’t have to be hard. Most find it difficult because they either don’t know how to go about the process of budgeting, or they try to be too accurate for each budget line item. You just need to be in the ballpark, not totally accurate. As long as you place buffers in the appropriate areas, you have a very high chance of achieving your plan.